Banking Salaries: What if that assumption is wrong?

assume

Assumption,  noun;   plural noun: assumptions

  1. a thing that is accepted as true or as certain to happen, without proof.
    (e.g.,”they made certain assumptions about the market”)

Everyone knows the old saying about assumptions:

When you assume, it’s easy to make an ass out of u and me.

Basically an assumption is a belief about how things work or why people do what they do.  It’s easy for an assumption we believe as true to actually be false. For example: “He assumed I was angry at him but I was really just frustrated with myself.”

In business, assuming something to be a certain way is often used to explain results or outcomes that are often lacklustre. Everyone accepts the assumption, without really digging deeper to find out the facts!

So what, you might be saying?

Well, one of the biggest assumptions occupying the business press these days is about large salaries and bonuses in banking.  Here’s what people are upset about.  Even though many banks, such as RBS and Barclays, are posting declining performance and poor earnings, both are increasing senior executive salaries and bonuses.  Why?  An assumption they believe to be a fact!

Here’s what is assumed by most senior level bankers:

“Unless we pay very large salaries and bonuses for top executives and other key banking staff, they will leave for another company and we will lose their expertise and capabilities.”

A corollary of this belief (assumption) is that “higher salaries attract the best and highest performing people and that we can’t attract and retain the best unless we pay big bucks”.

Okay, show me the proof.

Right now both Barclays and RBS are paying very big salaries, have been for years, yet their performance is less than stellar, and in fact, pretty bad.  And it was these same high performance, highly paid executives that helped bring about the banking crisis in the first place.  And when one executive leaves for another bank, HR just poaches an executive from a different bank, so not much changes.  Banking today really doesn’t develop people, they just trade them around!  It must be frustrating for a young up and coming bank executive to be passed over as someone is brought in from another bank to fill a key position.

And while these may be “big producers” for the bank, I know for a fact that they don’t contribute much to the “new culture” of banking that both RBS and Barclays are openly promoting to the press and public.  They just take their attitude of “me first” from one bank to another.  Customers take a distant second to “my salary and bonus”. Culture and a “new culture” of banking isn’t even on their radar screens.

So, what if, just for a moment, we say the belief that “we need to pay excessive salaries and high bonuses in order to attract and retain the best people” is false?  What if it were more true that “how we develop, coach and treat people determines their capabilities, performance, loyalty to the bank and customers, and results as much (or more) than pay”?

Yes, you may lose a few current top producers.  But do they really add to the new culture of trust and respect or do they just bring in profit?  And what collateral damage is their behaviour and work habits doing to the other staff, especially the support functions, who are critical to successful banking but whom most high flying traders and senior executives treat with distain?

Okay, you might lose a few high flyers, but maybe the upside would be a new level of professionalism, teamwork, development and performance.  Maybe even a new level of performance that is not dependent upon a few individuals but a performance level the entire team is accountable for creating.

A good example can be found in professional major league baseball (MLB).  Those USPayrollWins3 professional baseball teams with the highest salaries are not always the best performing teams or the league champions. In fact, only about 20% of the win ratio is related to total team salary.  Other factors are also important, especially coaching and teamwork.

An old but true business adage is that when your revenue is overly dependant upon one or two customers your business is at serious risk.  Well, when a bank’s performance is overly dependent upon a few highly paid staff who demand special bonuses to stay, you are at serious risk.  And excessive risk is something the big banks can’t afford at this stage in their comeback, especially with the currently low trust levels among the public and regulators.

Change the assumptions, change the game!

John R. Childress

Author of LEVERAGE: The CEO’s Guide to Corporate Culture, and FASTBREAK: The CEO’s Guide to Strategy Execution, available from Amazon in paperback and eBook formats.

See the review of LEVERAGE in The Economist (January 9, 2014.

John also writes thriller novels:  novels.johnrchildress.com

About johnrchildress

John Childress is currently Visiting Professor in Strategy and Culture at IE Business School in Madrid and a pioneer in the field of strategy execution, culture change, executive leadership and organization effectiveness, author of several books and numerous articles on leadership, an effective public speaker and workshop facilitator for Boards and senior executive teams. In 1978 John co-founded The Senn-Delaney Leadership Consulting Group, the first international consulting firm to focus exclusively on culture change, leadership development and senior team alignment. Between 1978 and 2000 he served as its President and CEO and guided the international expansion of the company. His work with senior leadership teams has included companies in crisis (GPU Nuclear – owner of the Three Mile Island Nuclear Plants following the accident), deregulated industries (natural gas pipelines, telecommunications and the breakup of The Bell Telephone Companies), mergers and acquisitions and classic business turnaround scenarios with global organizations from the Fortune 500 and FTSE 250 ranks. He has designed and conducted consulting engagements in the US, UK, Europe, Middle East, Africa, China and Asia. Currently John is an independent advisor to CEO’s, Boards, management teams and organisations on strategy execution, corporate culture, leadership team effectiveness, business performance and executive development. John was born in the Cascade Mountains of Oregon and eventually moved to Carmel Highlands, California during most of his business career. John is a Phi Beta Kappa scholar with a BA degree (Magna cum Laude) from the University of California, a Masters Degree from Harvard University and was a PhD candidate at the University of Hawaii before deciding on a career as a business entrepreneur in the mid-70s. In 1968-69 he attended the American University of Beirut and it was there that his interest in cultures, leadership and group dynamics began to take shape. John Childress resides in London and the south of France with his family and is an avid flyfisherman, with recent trips to Alaska, the Amazon River, Tierra del Fuego, and Kamchatka in the far east of Russia. He is a trustee for Young Virtuosi, a foundation to support talented young musicians. You can reach John at john@johnrchildress.com or john.childress@theprincipiagroup.com
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